Positive cash flow is what keeps every business up and running. A steady stream of sufficient capital is what allows you to keep your lights on and your brew flowing. Having a positive cash flow means that your brewery business has enough money to run its overhead costs and enough leftover afterwards to invest back into the business.
By properly analyzing your cash flow, you will quickly be able to spot any changes in the health of your business and address them early on before further problems arise and you find yourself in a negative cash flow situation.
1. Evaluate your invoicing terms
Getting your beer delivered to a distributor is half the job done. Now, you need to get paid. How long of a deadline you give your customer to pay can significantly impact your overall cash flow. Ideally, you want to receive funds from your customers as quickly as possible but invoicing terms that are too short may pose a problem. If your repayment deadlines are too short, you may risk losing customers as it doesn't give them enough time to pay.
On the other hand, if invoicing terms are too long, you risk delaying your cash flow. When determining your invoice repayment terms, you need to find the unique balance between these two, satisfying both your customers and keeping the cash flowing smoothly into your business.
2. Follow up on late payments
When customers are delayed in paying you, your business loses out. Because of this, you must follow up promptly on late payments. An excellent method to reduce the number of late payments you receive is to set up automated reminders. You can turn on that feature on your accounting software and these reminders will automatically prompt your customers to pay a few days before the invoice comes due.
Incentivizing customers to pay early by offering discounts is another way to minimize the number of late payments for your business. Also, charging interest on late payments will encourage your customers to pay on time and help you recuperate any losses incurred from the late payments.
3. Control inventory
As a brewery business, raw ingredients like malt and yeast are the key to producing your end product, and you should always hold sufficient stock on hand for upcoming productions. However, you don't want to have too much cash tied up in inventory, as this can lead to excess storage costs or wastage due to over-ordering.
It is essential to update your inventory levels regularly after each production day. This will give you a good indication of what your order quantities need to be to maintain a minimum inventory level.
Brewery management software like Ekos is excellent for inventory management. This software can help you forecast your next order and inform you when to restock your raw ingredients or replenish your packaging materials.
4. Negotiate bulk discounts with suppliers
As your brewery and production levels grow, you will be able to build relationships with your suppliers, allowing you to negotiate better terms. These terms could mean better pricing for more extensive, bulk purchases or discounts for early payments.
It is imperative to stay on top of your payables to build a good relationship with your suppliers and maximize any discounts that may be available to you. Track your costs and look at your purchasing trends for each vendor to see which expenses are growing and use this data to aid in your negotiations.
While these savings may seem small, in the long run, they can have a significant positive impact on your cash flow and boost your bottom line.
5. Keep your books current
Having access to up-to-date financial data is vital for any business. You must always know how much cash is going in and out of your business to have good visibility of your cash flow. This allows you to plan for upcoming expenses and ensures you have sufficient working capital to purchase your inventory and operate your brewery.
Negative cash flow can make it extremely difficult for your brewery business to thrive. This could mean that you don’t have the basic funds required to keep your lights on, let alone have any money left over to invest back into the growth of your business.
Monitoring your cash flow closely, being diligent about following up on late payments, and creating invoicing terms that work for both you and your clients can go a long way towards creating a healthy, positive cash flow.